Hedge funds put Gate Gourmet in the departure lounge

Airline catering firm Gate Gourmet, once at the centre of one of Heathrow’s
most bitter industrial disputes, has been put up for sale by its hedge fund
owners with an expected £700m price tag.

By Helia Ebrahimi

10:11PM GMT 06 Dec 2008

The company, which supplies inflight meals to customers such as British Airways, has appointed Credit Suisse to handle the sale on behalf of its one hundred or so shareholders with the first deadline for offers three weeks ago.

GG was once owned by Texas Pacific Group which bought it from Swissair for £618m in 2002. At the time the US buy-out giant was accused by unions of being an example of private equity’s slash-and- burn strategy, after it sacked about a third of its workforce – some 700 people. The industrial action led to a walk-out by staff, grounding 700 flights and causing travel chaos for passengers in the summer of 2005.

The job cuts had been part of a refinancing following covenant breeches with creditors. Its new debt agreements ushered in a series of new owners, most of which were hedge funds, who struck debt for equity swaps.

TPG began selling down its holding of the company and finally sold the last of its stake to Merrill Lynch in March last year. Plans for an IPO earlier this year were shelved, putting pressure on the hedge funds and distressed debt funds who are themselves facing redemptions.

Last year the company, which is the world’s largest independent provider of airline catering, serving more than 200m meals a year, made £140m of earnings before tax, depreciation and amortisation. However, last week GG lost the contract to supply British Airways’ short-haul flights out of Heathrow to Northern Foods. The company will still service the airline’s other routes but it would have come as a blow given the current strain on the entire industry.

Iberia’s souring relationship with BA, which threatens the pair’s planned merger, could mean regulatory approval is delayed in the US for the pair’s lucrative revenue-sharing joint venture alongside American Airlines. The US Department of Transport could demand lengthy amendments if the merger between the two airline changes.